ML Covered - July 2026

We are pleased to share our latest instalment of ML Covered, our monthly round-up of key events relevant to those dealing with Management Liability Policies covering D&O, EPL and PTL-type risks.

Court rules that the inability to exploit corporate opportunities is not a defence to a claim for breach of fiduciary duty

In Song and another v Smith and others [2026] EWCA Civ 719, the court considered whether the pursuit of corporate opportunities by a director, after the breakdown of a quasi-partnership, may amount to unfair prejudice and breach of fiduciary duty.

Background

Guorui Song and Yali Zhao (the Petitioners) and Kes Smith and Emma Smith (the Respondents) were equal shareholders in Kestral Group Limited (KGL), a holding company which owned the shares in two principal subsidiaries: SGR Estates Ltd (SGR) and Kestral Construction Ltd (KCL). The companies specialised in property acquisition, development and sale/refurbishment work. It was agreed that the arrangement was a quasi-partnership with an informal division of roles: Guorui Song provided funding, primarily via a director’s loan to SGR, while Mr Smith ran construction operations through KCL. In 2022, Guorui Song withdrew funding and the relationship broke down between the parties.

Post-breakdown, KCL continued, under the Respondents' direction, to progress some existing projects. Separately, the Respondents pursued two refurbishment contracts via newly incorporated companies (the Refurbishment Contracts). The Petitioners commenced a claim under section 994 of the Companies Act 2006 alleging post-breakdown diversion of business opportunities, relating to the Refurbishment Contracts, as well as pre-breakdown misappropriation of company funds. The High Court dismissed the petition in its entirety. The Petitioners appealed, primarily arguing that the judge was mistaken in rejecting the Petitioners’ allegations that Mr Smith had diverted corporate opportunities in breach of fiduciary duty, and whether any such breach amounted to unfair prejudice.

Decision

The Court of Appeal largely rejected the Petitioners’ appeal. However, the court held that the judge had been mistaken in treating the inability of the relevant companies to exploit the Refurbishment Contracts opportunities as a defence to a claim for breach of fiduciary duty.

The court held that, in principle, a participant who withdraws from a quasi-partnership cannot ordinarily complain of unfairness if the remaining participant pursues genuine future opportunities that would previously have fallen within the venture’s scope. For that reason, it was considered that one of the Refurbishment Contracts was a future opportunity, and that the Petitioners had not been unfairly prejudiced by Mr Smith pursuing it through a different company.

However, the court held that the other Refurbishment Contract had been acquired before the breakdown in relations and was therefore an existing opportunity, rather than a future one. Therefore, if the project generated profits were not accounted for to the relevant company, this may have amounted to a breach of fiduciary duty owed to that company. 

Key Takeaways

The case demonstrates that it is not always a defence for directors to argue, in respect of appropriating commercial opportunities, that the company lacked the resources to exploit it, the opportunity would not have benefited the company, or that the company was insolvent. These arguments remain irrelevant to the existence of the fiduciary obligation itself.

To read the full decision, please click here.

Misconduct by shareholder-director does not defeat unfair prejudice claim

In Stevens and another v Kyte and others [2026] EWHC 1231 (Ch), a court held that the exclusion of a shareholder-director from the management of a quasi-partnership, as well as the cessation of dividends, constituted unfair prejudice, despite serious misconduct by the shareholder-director.

Background

Gary Stevens, Stephen Kyte and Mark Handford, all electricians, founded and ran GSK Electrical Services Limited (GSK). The three men were directors, shareholders and employees, while their wives also held shares. The directors took modest salaries and were mainly remunerated by dividends. Relations between Mr Stevens and Mr Kyte deteriorated from 2014 onwards. In 2021, Mr Handford announced his intention to retire, and the three met to discuss his planned retirement. It was clear the business could not be managed if Mr Kyte and Mr Stevens could not work together. After the meeting, Mr Stevens covertly recorded discussions and installed a hidden CCTV camera in the office, which was later discovered. He was later dismissed as an employee for gross misconduct and removed as a director. Following his removal, the company ceased paying dividends and instead remunerated the remaining directors through increased salaries.

The Stevens petitioned under sections 994–996 of the Companies Act 2006. The others cross-petitioned to wind up GSK on “just and equitable” grounds. A central issue was the valuation methodology to be applied if a buy-out order were made.

Decision

The court upheld the unfair prejudice petition, ruling that prejudice had been suffered when Mr Stevens had lost both his role in management and the economic benefit of his shareholding when dividends ceased. The court ruled that the shift from dividends to enhanced salaries was intended to place economic pressure on him to sell his shares at an undervalue.

The court held that although Mr Stevens’ covert CCTV was a serious breach of trust and director duties, the contemporary documents showed Mr Kyte and Mr Handford had been planning Mr Stevens’ removal and a low-cost buyout well before the CCTV was discovered.

The court ordered that Mr Kyte and Mr Handford purchase the petitioners’ shares and that the valuation should be conducted at the date of purchase rather than the date of Mr Stevens’ removal, without a minority discount. The winding-up cross-petition was dismissed.

Key Takeaways

The decision demonstrates that an unfair prejudice claim will not necessarily be defeated because of serious misconduct by a shareholder-director. The decision also shows that the cessation of dividends may constitute unfairly prejudicial conduct where it deprives a minority shareholder of any practical benefit from ownership.

To read the full decision, please click here.

Government consults on expanded workplace rights for unpaid carers (and “Hugh’s Law”)

The Government has launched a consultation on employment rights for unpaid carers and parents of seriously ill children as part of its wider plan to Make Work Pay agenda. No specific reforms are proposed yet, but the consultation tests potentially significant changes, including paid leave entitlements and longer job-protected absences.

The consultation opened on 09/06/2026 and closes on 01/09/2026.

Background

An unpaid carer is someone who looks after a family member, partner, child or friend who needs help because of long-term illness, disability or old age, without payment and outside of their job.

The consultation highlights existing rights that many employers already manage in practice, including:

• up to five days (pro rata) of unpaid carer’s Leave in a rolling 12-month period for care (or arranging care) for a dependant with a long-term care need; and
• unpaid time off for dependants to deal with emergencies.

It also flags wider rights that may be relevant in practice (such as flexible working) and potential Equality Act protections in some scenarios.

What is the Government looking at?

The consultation seeks evidence on whether the current framework is “fit for purpose” and what changes would be proportionate and workable. In particular, it asks about:

• Better information and guidance for employers and employees, including whether tailored guidance would help in especially challenging situations (such as end-of-life care and parents of seriously ill children).
• Extending unpaid carer’s leave beyond the current five days a year, and the likely impact on carers and employers.
• Introducing a longer period of leave with a statutory “right to return” (job protection), including who should qualify and what evidence (if any) should be required.
• Introducing paid carer’s leave, including how much leave, what pay level, and what eligibility evidence.
• A separate proposal (often referred to as “Hugh’s Law”) for a paid leave entitlement for parents/primary caregivers of seriously ill children, including how “serious illness” should be defined, eligibility, evidence requirements, leave length and pay level.

Possible direction of reform

While the consultation is evidence-gathering (and does not commit to change), the options under review suggest a direction of travel towards stronger and more usable workplace protections for carers—potentially including some form of paid leave and/or job-protected longer absences for defined situations (particularly where caring needs are acute).

For employers, this could increase the need for clear internal processes, consistent handling of requests and evidence, and forward planning for short-notice and longer-term absences—while potentially improving retention of employees with caring responsibilities.

To read more, please click here.

EAT dismisses Respondent's appeal against decision to refuse an application for extension of time - Costco Wholesale UK Ltd v Nash [2026] EAT 85

The Employment Appeal Tribunal (EAT) has dismissed an application from an employer for an extension of time to present its response that was 10 months late to a Tribunal claim.  

The Claimant was employed by Costco (the Respondent) as a Members Services Assistant. He was dismissed two months into his employment on the basis that he had failed his probation. The Claimant subsequently presented a claim to the Employment Tribunal (ET) for direct race discrimination and race-related harassment on 27 December 2022.

The Respondent submitted its Response 10 months late and, at the same time, applied for permission for an extension of time. The leading authority on granting extensions of time for a Response is Kwik Save Stores Ltd v Swain [1997] ICR 49 EAT (Kwik Save). In considering an application for an extension of time, the ET must consider (a) the explanation given for the delay; (b) the balance of prejudice between the parties and; (c) the merits of the proposed defence.

The ET considered these principles in its decision to refuse the Respondent's application for an extension of time, in particular:

1. The Respondent asserted that it had not been aware of the claim until the Notice of Preliminary Hearing was received on 19 December 2023.
2. However, the Respondent had, in fact, received and ignored a total of ten pieces of correspondence, including post and email correspondence containing the ET1, a Notice of Hearing, a Notice that no Response had been received and a further Notice of Hearing. The ignored correspondence also included emails from the Claimant and the ET to the Respondent's General Manager.
3. The Respondent had failed to provide a truthful explanation for the delay.
4. The Claimant had suffered prejudice as a result of the delay.
5. The Respondent's Response to the claim was not particularly strong in any event.

The Respondent appealed to the EAT, but it dismissed the appeal on the basis that the ET had not erred in law and had properly considered the application and the potential effects of either accepting or rejecting it. The ET had a wide discretion as per the principles of Kwik Save, and the EAT concluded that the ET's decision had been made in accordance with these principles.

The case is a stark reminder to respondents to respond promptly to claimants and potential claimants, as well as the Tribunals, in employment claims. Whilst the ET has a wide discretion in considering applications for an extension of time, respondents should be aware that a poor explanation for the delay or a Response without sufficient merit will very likely lead to an extension being refused.

To read more, please click here 

HMRC consults on GMP conversion tax changes

HMRC has launched a consultation on draft regulations aimed at preventing pension scheme members facing unexpected annual allowance tax charges, as a result of guaranteed minimum pension (GMP) equalisation exercises undertaken through GMP conversion. The consultation (closing 13 July 2026) seeks industry feedback on secondary legislation that would amend the Finance Act 2004 to maintain existing annual allowance protections following conversion.

The proposals respond to concerns that some deferred members could lose Deferred Member Carve-Out protection where schemes use the Department for Work and Pensions’ (DWP) statutory GMP conversion method to equalise benefits between men and women. Under current rules, GMP conversion can increase the value of benefits for annual allowance purposes, potentially triggering unanticipated tax charges.

HMRC’s draft approach would disregard any increase in pension rights attributable to GMP conversion or to rectifying sex-based inequalities linked to GMPs when calculating pension input amounts, provided the conversion is not part of a tax avoidance arrangement. The changes would apply to defined benefit (DB) and cash balance arrangements, with amendments proposed to ss. 230 and 234 of the Finance Act 2004 and would take effect from the 2027/28 tax year.

This is a welcome development given that under discontinuance policies it is possible to seek an indemnity for any GMP payments and the tax arising as a loss to the member.

TPR publishes statement on DB surplus release

The Pensions Regulator (TPR) has issued early guidance on the forthcoming DB surplus flexibilities, warning trustees not to come under undue pressure from sponsoring employers when considering whether to release surplus. TPR emphasises that trustees remain responsible for surplus release decisions and that their independence “is unaffected” by the new regime, including where employers seek changes to trustee board composition solely to secure agreement.

The guidance follows the DWP consultation on surplus flexibilities, intended to make it easier for well-funded DB schemes to release surplus to employers and members. TPR notes that around 60% of DB schemes are in surplus on a buyout basis and around 80% on a low dependency basis. The Pension Schemes Act 2026 introduces a statutory override enabling trustees to distribute surplus even where scheme rules do not expressly permit it, with changes expected to come into force in April 2027.

TPR encourages schemes to prepare now by reviewing any surplus policy, aligning funding and investment strategy, assessing run-on governance and expertise, and engaging early with employers on objectives. Trustees are also urged to negotiate the quantum of any release and consider member/employer balance, taking account of funding, covenant, investment implications, run-on time horizon and whether members should share in surplus (including where discretionary increases have historically been granted). TPR expects to consult on more detailed guidance later this year, once the DWP has responded on the supporting regulations.

There is a possibility of challenge from members where surplus is returned to employers, with members potentially arguing that they should receive an augmentation in their benefits instead.  The guidance should assist trustees in protecting themselves from any successful challenge.

TPR urges DC schemes to be ready for new rules

TPR has signalled that trustees of workplace DC schemes should start assessing now whether they can meet the new requirements expected to come into force in late 2026.

TPR’s data indicates a 15% reduction in the number of DC schemes between 2024 and 2025, reflecting a shift towards fewer, larger arrangements. The message for trustees of smaller schemes is clear: be ready to demonstrate the value delivered to members or consider consolidation into a scheme with greater scale. The reforms, introduced under the Pension Schemes Act, are set to raise expectations on governance and member outcomes. Key measures include new value-for-money assessments benchmarking performance and service, requirements to put in place default options as members approach retirement, and steps to facilitate consolidation of small pots (including those under £1,000). At the top end of the market, master trusts will face a £25 billion asset threshold from 2030.

For many schemes, the practical challenge will be balancing higher compliance demands with delivering demonstrable member value.

TPO finds no duty to consult deferred members on DC bulk transfer to an authorised master trust

In a recent case, the Pensions Ombudsman (TPO) dismissed a deferred member’s complaint about a bulk transfer of defined contribution (DC) benefits from the Samworth Brothers Retirement Savings Plan (the Plan) to the Mercer Master Trust (the Trust). TPO found no breach of law or maladministration as there was no statutory duty to consult deferred members, and the trustee had met the statutory requirement to provide at least one month’s information notice ahead of a transfer without consent to an authorised master trust.

The Background

The Complainant was a deferred member of the Plan. Under rule 26.5 of the Plan’s trust deed and rules dated 22 July 2015, the trustee could transfer assets “in respect of any or all of the beneficiaries” to a receiving scheme and, where permitted by the “Preservation Requirements” (Part IV, Pension Schemes Act 1993), do so without member consent.

On 6 May 2022 the trustee wrote to the Complainant about a proposed bulk transfer to the Trust, stating it would take place in the week commencing 20 June 2022. The letter also set a 20 May 2022 deadline for transfer-out requests and an 8 June 2022 deadline for investment switches (linked to administrative preparations and an investment “blackout period”). The Complainant received the letter on 13 May 2022 and complained that deferred members had not been consulted and had insufficient time to act. He also alleged potential investment loss and said he wished to remain in the Plan.

The trustee rejected the complaint and the Adjudicator concluded no further action was required.

The Decision

TPO agreed with the Adjudicator and dismissed the complaint. The trustee had the relevant power under the Plan rules, and regulation 12(7) of the Occupational Pension Schemes (Preservation of Benefit) Regulations 1991 permitted a transfer of money purchase rights without member consent where the receiving scheme was an authorised master trust (which the Trust was found to be).

TPO also found compliance with regulation 12(4B), which requires information about the proposed transfer to be provided “not less than one month before” it takes place. There was no evidence the trustee had assumed any broader duty to consult, or to provide notice earlier than the statutory minimum.

TPO rejected the argument that the Consultation Regulations required consultation of deferred members: deferred members are not “affected members” (limited to active or prospective members), and “listed changes” do not include bulk transfers without consent. Finally, while the May letter lacked some practical detail (such as where to obtain transfer forms) and the Complainant would “likely have had little time” to submit an application, TPO concluded this did not amount to maladministration on the facts. The Complainant also provided no evidence of the claimed financial loss.

Key Takeaways

A scheme power to affect a bulk transfer, read alongside the Preservation Regulations, can permit the transfer of deferred DC rights to an authorised master trust without member consent, provided the statutory conditions are met. The determination also underlines that compliance with the statutory minimum one-month information requirement may be sufficient to defeat a maladministration complaint, even where, in practical terms, a member has limited time to arrange an individual transfer out. Separately, the Consultation Regulations do not impose a general duty to consult deferred members on this type of transfer. Finally, while TPO noted the communications could have been more helpful on practical next steps, it focused on whether the letter was misleading and whether legal requirements were satisfied, although trustees should still be alive to complaint and reputational risk where members feel unable to take informed action.

TPO holds scheme forfeiture clause ineffective

TPO has recently upheld a complaint about trustees withholding historic arrears of a spouse’s pension (including GMP) on the basis of a scheme “forfeiture” provision. Although legislation can permit forfeiture of unclaimed pension arrears after six years (and GMP after eight years), TPO found the scheme’s rule wording did not operate as an effective forfeiture clause. The trustees were directed to pay the estate the outstanding pension from 2001, plus interest.

The background

A scheme member, Mrs P, became entitled to a spouse’s pension (including GMP) of around £8,300 per year following her husband’s death in 1996 under the European Metal Recycling Ltd Pension and Life Assurance Scheme. In 2001, Mrs P moved to Turkey and, for reasons unknown, payment of her spouse’s pension ceased. She continued to receive her UK state pension and a separate personal pension.

A new administrator appointed in 2014 reviewed member data and identified that Mrs P was recorded as a pensioner but with no record of payments. Tracing attempts were unsuccessful and it later emerged that the scheme held an incorrect date of birth. Mrs P died in Turkey in September 2020, after which her personal representative sought information and complained about the non-payment history. The complaint was rejected by the scheme and the adjudicator.

The trustees relied on rule 25(b) (headed “Forfeiture”), which stated: “Any monies payable out of [the Scheme] and not claimed within six years from the date on which they were due to be paid may at the Trustees’ discretion may be used for any of the purposes of [the Scheme]” [SIC]. They paid a lump sum limited to six years’ arrears (and eight years for GMP), asserting older arrears were forfeited.

The decision

TPO disagreed with the Adjudicator and upheld the complaint. While section 92 of the Pensions Act 1995 and regulation 26 of the 2015 contracted-out regulations can permit forfeiture in defined circumstances, that statutory permission only bites if the scheme rules contain an operative forfeiture clause.

On construction of rule 25(b), TPO concluded the wording did not clearly extinguish the beneficiary’s entitlement. It was discretionary and framed as an administrative power to apply unclaimed monies, rather than a provision that actually time-bars or forfeits the underlying right. The wording was said to be “strikingly similar” to the ineffective clause considered in Axminster, and materially different from the clause in CMG, which operated mandatorily to bar entitlement after six years.

TPO also rejected the trustees’ attempt to characterise this as a “missing beneficiary” case. Given the unexplained cessation of payment in 2001, the circumstances were treated as closer to an underpayment scenario. The trustees were directed to pay the estate the outstanding pension and GMP from 2001, plus interest calculated at simple Bank of England base rate from each due date to payment.

The key takeaways

This determination provides a warning for trustees seeking to rely on forfeiture. Even where legislation allows forfeiture of unclaimed arrears, trustees need scheme wording that clearly and operatively removes the member’s entitlement after the relevant period; a clause that merely permits trustees to repurpose “unclaimed monies”, particularly on a discretionary basis, may not be enough. Headings and labels (such as calling a provision “Forfeiture”) are unlikely to rescue weak operative text. The decision also highlights the evidential importance of understanding why benefits stopped: where non-payment is unexplained, it may be treated as underpayment, increasing the risk that historic arrears remain payable (with interest) despite long periods without contact.

To read the decision, please click here

If you have any queries or questions on this topic please do get in contact with a member of the team, or your usual RPC contact.